nep-fmk New Economics Papers
on Financial Markets
Issue of 2022‒09‒05
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Modelling Profitability of Private Equity: A Fractional Integration Approach By Guglielmo Maria Caporale; Luis A. Gil-Alana; Francisco Puertolas
  2. StockBot: Using LSTMs to Predict Stock Prices By Shaswat Mohanty; Anirudh Vijay; Nandagopan Gopakumar
  3. Recurrence measures and transitions in stock market dynamics By Krishnadas M.; K. P. Harikrishnan; G. Ambika
  4. The effect of sentiment on institutional investors: A gender analysis By Gehde-Trapp, Monika; Klingler, Linda
  5. Financial, Institutional, and Macroeconomic Determinants of Cross-Country Portfolio Equity Flows By António Afonso; José Alves; Krzysztof Beck; Karen Jackson
  6. The Impact of Retail Investors Sentiment on Conditional Volatility of Stocks and Bonds By Elroi Hadad; Haim Kedar-Levy
  7. Optimal allocation of limited funds in quadratic funding By Ricardo A. Pasquini
  8. A Study on Impact of Dividend Policy on Initial Public Offering Price Performance By S. Meghna; N. Suresh; J. C. Usha
  9. Bank of Japan's ETF purchase program and equity risk premium: a CAPM interpretation By Mitsuru Katagiri; Koji Takahashi; Junnosuke Shino

  1. By: Guglielmo Maria Caporale; Luis A. Gil-Alana; Francisco Puertolas
    Abstract: This paper analyses the stochastic behaviour of Private Equity returns (a measure of profitability) applying fractional integration methods to an extensive dataset including quarterly data spanning the last four decades for various geographical areas (US, Europe, Asia/Pacific, the Rest of the World and the Total) and investment types (Buyout & Growth Equity, Venture Capital, Fund of Funds & Secondary Funds, Infrastructure, Natural Resources, Real Estate, Subordinated Capital & Distressed as well as the aggregate category All Types). The results support the hypothesis of stationarity and mean reversion in all cases; however, there are differences in the degree of persistence across regions, the series for Europe being the closest to a short-memory process, while those for the US exhibit long memory, which implies that shocks have long-lived effects. Differences are also found in the results by asset class. The implications of these findings for private equity management, profit smoothing and return benchmarking are briefly discussed.
    Keywords: private equity, profitability, fractional integration, long memory, mean reversion
    JEL: C22 C59 Y10
    Date: 2022
  2. By: Shaswat Mohanty; Anirudh Vijay; Nandagopan Gopakumar
    Abstract: The evaluation of the financial markets to predict their behaviour have been attempted using a number of approaches, to make smart and profitable investment decisions. Owing to the highly non-linear trends and inter-dependencies, it is often difficult to develop a statistical approach that elucidates the market behaviour entirely. To this end, we present a long-short term memory (LSTM) based model that leverages the sequential structure of the time-series data to provide an accurate market forecast. We then develop a decision making StockBot that buys/sells stocks at the end of the day with the goal of maximizing profits. We successfully demonstrate an accurate prediction model, as a result of which our StockBot can outpace the market and can strategize for gains that are ~15 times higher than the most aggressive ETFs in the market.
    Date: 2022–07
  3. By: Krishnadas M.; K. P. Harikrishnan; G. Ambika
    Abstract: The financial markets are understood as complex dynamical systems whose dynamics is analysed mostly using nonstationary and brief data sets that usually come from stock markets. For such data sets, a reliable method of analysis is based on recurrence plots and recurrence networks, constructed from the data sets over the period of study. In this study, we do a comprehensive analysis of the complexity of the underlying dynamics of 26 markets around the globe using recurrence based measures. We also examine trends in the nature of transitions as revealed from these measures by the sliding window analysis along the time series during the global financial crisis of 2008 and compare that with changes during the most recent pandemic related lock down. We show that the measures derived from recurrence patterns can be used to capture the nature of transitions in stock market dynamics. Our study reveals that the changes around 2008 indicate stochasticity driven transition, which is different from the transition during the pandemic.
    Date: 2022–08
  4. By: Gehde-Trapp, Monika; Klingler, Linda
    Abstract: In this paper, we explore whether male and female fund managers react differently to sentiment. Our main idea is that sentiment indicates mispricings of stocks relative to their fundamental values, and that rational fund managers should profit from these mispricings. As trading against the mispricing is risky, we hypothesize that female fund managers take on less aggressive positions. Indeed, our empirical results show that male fund managers hold portfolios with significantly higher total fund risk and unsystematic risk when sentiment is bad. For female fund managers, we find significantly lower levels in unsystematic risk when sentiment is bad. This difference in risk-taking behavior does not affect fund returns or risk-adjusted performance.
    Keywords: mutual funds,gender,sentiment,investment behavior
    JEL: G11 G23 G40
    Date: 2022
  5. By: António Afonso; José Alves; Krzysztof Beck; Karen Jackson
    Abstract: We consider a new dataset that provides a description of the population of financial equity flows between developed countries from 2001 to 2018. We follow the standard practice of controlling for pull and push factors as well as gravity-style variables, while also accounting for the business cycle, public debt and sovereign ratings. Our key findings are as follows: (i) equity flows are more intense between countries at the same stage of the business cycle (ii) increased equity flows to countries with a relatively lower public debt deficit as a ratio of GDP (iii) financial and macroeconomic variables are important for big equity flows, while institutional variables are important for the small flows. Overall, this new dataset provides novel evidence on the importance of the business cycle, government debt and sovereign ratings scores.
    Keywords: cross-country equity flows, stock market returns, panel data, quantile regression, business cycle
    JEL: C23 E44 F44 G15
    Date: 2022
  6. By: Elroi Hadad; Haim Kedar-Levy
    Abstract: We measure bond and stock conditional return volatility as a function of changes in sentiment, proxied by six indicators from the Tel Aviv Stock Exchange. We find that changes in sentiment affect conditional volatilities at different magnitudes and often in an opposite manner in the two markets, subject to market states. We are the first to measure bonds conditional volatility of retail investors sentiment thanks to a unique dataset of corporate bond returns from a limit-order-book with highly active retail traders. This market structure differs from the prevalent OTC platforms, where institutional investors are active yet less prone to sentiment.
    Date: 2022–08
  7. By: Ricardo A. Pasquini
    Abstract: We examine the allocation of a limited pool of matching funds to public good projects using Quadratic Funding. In particular, we consider a variation of the capital constrained quadratic funding (CQF) proposed by Buterin, Hitzig and Weyl (2019), which tends to generate a socially optimal allocation of limited funds.
    Date: 2022–07
  8. By: S. Meghna; N. Suresh; J. C. Usha
    Abstract: This study examines the impact of dividend policy on the performance of initial public offerings in India. The period of study is from the year 2011-2014. Monthly returns of the IPOs issued in the considered period and the Indian Stock Market Index (Nifty 50) were considered for the long-run performance study. The methodological tools used are long-run performance statistics and the GARCH model. The Dummy variable was used to measure the effect of dividends on the IPOs. The study reveals that the dividend policy has no significant effect on the stock prices of IPO.
    Date: 2022–07
  9. By: Mitsuru Katagiri; Koji Takahashi; Junnosuke Shino
    Abstract: In this paper, we investigate the effects of the Bank of Japan's (BOJ) exchange-traded fund (ETF) purchase program on equity risk premia. We first construct a unique panel dataset for the amount of individual stock that the BOJ has indirectly purchased in the program. Then, utilizing the cross-sectional and time-series variations in purchases associated with the BOJ's policy changes, the empirical analysis reveals that: (i) the BOJ's ETF purchases instantaneously support stock prices on the days of purchases, and (ii) the instantaneous positive effects on stock prices, combined with the countercyclical nature of the BOJ's purchases, have decreased the market beta and coskewness of Japanese stocks, thus leading to an economically significant decline in risk premia.
    Keywords: large-scale asset purchases (LSAP), ETF purchase program, capital asset pricing model (CAPM), Bank of Japan
    JEL: E58 G12 G14
    Date: 2022–07

This nep-fmk issue is ©2022 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.